Thursday, July 19, 2012

Forget decoupling from Europe--we've been decoupled from reality since 2008.

Have we decoupled from the global slowdown? Doubtful. Have we decoupled from reality? Undoubtedly--and have been since 2008. One key attribute of reality is feedback: actions have consequences, and various forces reinforce or resist each other in a dynamic interplay of positive and negative feedback.

Another key attribute of reality is risk. Risk is as ever-present as gravity, and it cannot be eliminated; it can only be shared or transferred.

When you overwhelm feedback with massive interventions that mask risk, you decouple from reality. With feedback suppressed and risk hidden, the system's resilience and resourcefulness both atrophy. Participants start making decisions not on risk assessment and feedback from reality but on the results of the intervention.

Pharmaceutical intervention offers an apt medical analogy. Various risk factors such as high blood pressure and high levels of LDL cholesterol have been correlated with increased risk of heart disease. Medications can lower these metrics, and so these interventions are now ubiquitous.

Sometimes these result from genetic propensities, but other times they are consequences (feedback) of an unhealthy lifestyle: obesity, poor diet, lack of fitness, etc. If we suppress a single feedback from a spectrum of health-related feedbacks and consequences, have we restored health or simply masked the risk of an unhealthy lifestyle?

Clearly, complex systems do respond to critical thresholds or "pivot points" that trigger cascading responses. It is wise to identify key metrics and manage the risks they present or elevate. But it is unwise to assume that manipulating one metric will necessarily restore a system that is wobbling out of equilibrium to a dynamic equilibrium.

Slamming down one metric or another does not necessarily reduce the systemic risk. Just as someone who eats junk food, smokes cigarettes and drinks sodas all day while slumped on a sofa will not become "healthy" just because statins have slammed down his LDL cholesterol levels, an unhealthy economy cannot be restored to health by manipulating a handful of inputs such as money supply or key metrics such as unemployment.

All these interventions accomplish is to mask risk by transferring it to the system itself, where it builds up behind the apparent "fix" and eventually explodes.

All sustainable systems must be resilient and transparent. Intervening to suppress key inputs and manipulating data points makes the system appear less at risk, but reducing apparent risk is not the same as encouraging resourcefulness and resiliency.

What we have as a consequence of four years of intervention, suppression and manipulation of data is a stock market that is now totally dependent on one input: quantitative easing intervention by the Federal Reserve. An unmanipulated market is based on multiple transparent inputs, including corporate earnings, revenues, currency valuations and so on.

Once inputs are gamed or manipulated, transparency is lost and feedback is distorted or suppressed.

Four years of intervention, suppression and manipulation of data have left the U.S. economy dependent on monetary interventions and massive fiscal deficit spending. Imagine a sickly patient in bed who has become totally dependent on several driplines (interventions). To keep the patient alive, the meds are steadily increased.

Are these interventions restoring health, or simply keeping the patient going until some unknown magic restores health?

In the U.S. economy, the driplines are debt-based spending and leverage. Thanks to endless intervention and manipulation, the economy is now totally dependent on massive debt-based spending and increased leverage for its "growth."

The person or business that becomes dependent on welfare loses resiliency and resourcefulness. To the degree that economies become dependent on debt and leverage just like individuals and companies become dependent on welfare, entire economies lose their resilience and resourcefulness.

A healthy forest offers another apt analogy. A healthy temperate-region forest depends on occasional forest fires to clear out deadwood and refertilize the depleted soil with ashes. In suppressing all fires--what we might call "stress" and feedback-- management virtually guaranteed that when the forest was eventually set ablaze by a random lightning strike, the resulting fire would be catastrophic because the deadwood had been allowed to pile far higher than Nature would have allowed.

The "managers" of the economy have let a couple hundred billion dollars in bad debt burn, and they think the $15 trillion economy is now restored to health.Writing off a couple hundred billion is like letting a few acres of grassland around the parking lot burn and reckoning you've cleared the entire forest of deadwood.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted

Weekly Musings Reports

"What makes you a channel worth paying for? It's actually pretty simple - you possess a clarity of thought that most of us can only dream of, and a perspective that allows you to focus on the truth with laser-like precision." Jim S.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

Contribute via PayPal

Why I gratefully accept donations and why you might want to donate:

A 95-minute movie with 10 minutes of ads and a small popcorn costs $25.
If you enjoyed this site for at least 2 hours this year, and you donate $25, you already received more entertainment than you did from the movie. The other 100+ hours of enjoyment you receive here is FREE.

Subscribers and donors of $50 or more this year will receive exclusive weekly Musings Reports.

You have the immense moral satisfaction of aiding a poor dumb writer who seeks to inform, entertain and amuse you.